Beginning from a position of long-run equilibrium,a contractionary monetary policy by the Bank of Canada causes

Question

Quizplus · Accepted Answer

A contractionary monetary policy reduces the money supply and raises interest rates, which suppresses investment, consumption, and aggregate demand. As a result, the economy would operate below potential output, and actual output would fall short of the economy's potential level. In other words, potential output would exceed aggregate demand for goods and services.

Beginning from a Position of Long-Run Equilibrium,a Contractionary Monetary Policy